Takedown risk in a loan commitment exposes the FI to
A)immediate liquidity risk.
B)basis risk.
C)spread risk.
D)externality effects.
E)future liquidity risk.

Question

Quizplus · Accepted Answer

Takedown risk refers to the risk that a borrower may not draw down on a loan commitment, leaving the lender with an unused exposure. This may lead to future liquidity risk, as the FI may have already allocated funds towards the commitment and may now have to find alternative sources of liquidity to replace the anticipated loan.

Takedown Risk in a Loan Commitment Exposes the FI to